A growing number of former endowment investment executives are setting up companies to benefit from the nascent trend toward universities outsourcing their endowment investment offices.
Among the new players close to launching their own ventures is Robert Boldt, former president and chief executive officer of the University of Texas Investment Management Co., Austin which manages $19 billion on behalf of the University of Texas system.
Mr. Boldt confirmed he will be starting a firm that will provide smaller university endowments with an outsourced investment strategy. He declined to discuss specifics, but generally described it as a fund consisting of various assets classes that will allow smaller university endowments to invest their assets with the same capabilities of a large endowment.
Also said to be going into that line of business is Thruston Morton, former chief investment officer of the $7.5 billion endowment of Duke University, Durham, N.C., who announced his retirement in November. Mr. Morton has teamed up with Stephanie Lynch, former CIO of the Duke Endowment, a $2.9 billion private foundation in Charlotte (no relation to Duke University). Ms. Lynchs last day at the Duke Endowment was March 2, confirmed a spokeswoman for the foundation.
Neither Mr. Morton nor Ms. Lynch responded to calls for information, but multiple sources said the two will launch their investment firm shortly.
The solid investment performance of larger endowments such as those run by UTIMCO and Duke Management Co. is driving the formation of this fledgling industry.
There is a substantial performance gap between the large and small university, said Mr. Boldt. Smaller universities dont have the resources, the staff, or even the access to certain types of investments to produce the same results as larger institutions. Large endowment models are generally more successful because they are more diverse.
The latest report from the National Association of College and University Business Officers, Washington, firmly supports Mr. Boldts claim. Last year, the average annual investment return for a university endowment was 10.7%. The largest universities those with more than $1 billion in endowment assets produced an average return of 15.2%, while endowments with less than $100 million generally only produced returns in the high single digits.
Endowments with more than $1 billion have a considerably larger allocation to hedge funds, private equity, venture capital and natural resources, which has driven their outperformance, according to the NACUBO report. Last year, these endowments had an average of 36% of their assets allocation to those four categories of alternatives, compared with only 13.9% for the average university endowment.
The desire for broad investment exposure as well as access to top-tier alternative investment firms has already prompted some endowments to tap one of the handful of investment firms that can run all or a part of their assets.